hello and welcome to today's "worldwide exchange." i'm can he can he akelly evans your headlines from around the world. spain's factory activity suffers its steepest fall in five months. still, european markets inching into the green after the s&p 500 falls on the first day of the quarter as concerns about corporate earnings weigh. north korea about to restart its main nuclear conflict, a move that could give it more plutonium for weapons. and all eyes on italy as the

country's president try and meet the ten wise men amid post election dead lock today. >> announcer: you're watching "worldwide exchange," bringing you business news from around the globe. welcome back to the program. welcome back to a two-hour program and it's a good thing because there is so much to get through today including data that's breaking just at the top of the hour. shedding the final march pmi manufacturing for europe coming in at 46.8. as you can see, the euro is roughly unchanged. some economies, the biggest ones have seen while they're still in contraction some improvement from the flash numbers two weeks ago. the euro is up about 0.1%. 1.28 is the level. markets perhaps don't have a worse tone keying off the session we had in the u.s. yesterday. let's dig into these figures a little bit and get a sense of just how we're starting the

month off here. holger, i can run through some of these figures. we've got the pmi falling. it was 46. 6/. it was 46.8, just a touch better, but still, contractionary territory. >> it's basically fairly bad news what we had with the eurozone in terms of economic data. after a pretty good run which lasted until february, march has been a softer month. apparently the political volleys in italy and at the end plus some concerns about china seem to be weighing on sentiment going forward, at least, we learned yesterday from the chinese pmi, which has been up, these concerns about china should be easing a bit. but for the moment, the outlook for the eurozone is modest recession, first quarter of this year. relatively not much growth the second quarter. >> the ecb meets thursday. mario draghi after winning is coming in and helping government

bond yields by saying he'll do whatever it takes last year has kind of been out of the picture lately. is it becoming more urgent for the european central bank, just forgetting everything across the eurozone to ease for the sake of the weak.ing outlook here? >> i don't think there is very much the european central bank can do. cutting interest rates would not make a huge difference. the problem of fate has very little to do with ecb rates at 0.75 being too high and an extremely low rate. the problem is the transmission of monetary policy to householdes and companies. >> yeah. no spanish companies are borrowing at 0.75%. >> exactly. reducing that rate wouldn't really help them very much. what we need much more are a signal or signals of confidence that spain, that other countries would stay the course. if the confidence in the future of spain and italy rebounds, then banks will have better

funding core as they'll be able to pass on what the ecb has already offered in low rates. so i don't think there is very much the ecb can do. the onus is on policymakers such as the first cyprus bailout, the -- >> unfortunately we can't find that, recognize on it. >> we can't undo that. but the point is for italy, for the european level, policymakers beyond the ecb make no nonsense, always consider that confidence is crucial. say a few nice words about how things are going, indeed. a rapid agreement between cyprus and the troika about the adjustment program there. the clearer statement from the eu in brussels that companies who missed the targets for cyclical reasons will be forgiven. such things which could build confidence will do much more than anything the ecb could do. >> and everything right now that they're doing seems to be

undermining it instead. just a quick line on italy here, reporting its jobless rate did decline in february from 11.6 to 1 1.7. we're going to wait and talk about italy in just a few minutes time. also coming up on today's show, south korea is pledging -- the north. we'll bring you the latest from seoul in just a couple of minutes. india is saying investors his country is open for business. we'll bring you the interview on cnbc coming up. and campaigning officially gets under way in italy. we'll bring you analysis on that situation about 11:20 central european time. and the u.s. auto sector isn't shifting into overdrive. march sales are expected to jump. it could be the fifth straight month of strong sales figures. we'll preview that about 11:30 cet. worldwide@cnbc.com. a long weekend and i forget the

e-mail address. just tragic. tweet us. and i remember that one. it's at cnbcwex. @kellyevans. cyprus has had the terms of its bailout softened. it will now have until 2017 to meet a budget surplus target. a government spokesperson said they hope to extend that deadline to 2018. meanwhile, the president has extended a -- to revive the economy. over the weekend, it was decided those with over 100,000 euros in banks would lose 60% of their savings. laiki branches taking control of nearly 270 million pounds of deposits. the move comes after laiki was liquidated as part of the bailout deal. laiki accounts will be covered

by british deposit protection and will not be subject to haircuts or withdraw restrictions enforced in cyprus. holger is still with us. i want to go back to this first point about cyprus. it's an extraordinary statement. you have cyprus basically saying, yeah, it's going to take us a little longer. they need an extra year to meet budget issues. is there any way cyprus is running a budget surplus in a couple years time? >> not in a year's time, but come 2018, a lot is possible. cyprus has many problems, but their labor market is pretty good. unregulated, it's largely in the british fagsz. so cyprus does have the chance of a very sharp bad recession now, for a year, if we're unlucky for two, but then a very strong rebound. just like the baltics and just

as ireland seems to be to some extent starting to do. so four or five years from now, yes, cyprus can have a fiscal surplus. >> but ireland today has slipped back into contraction. what's the economy in cyprus if now trust in its biggest and most important sector in industry has been wiped out? >> well b with the flexible labor market that's doable, it is actually look at the geographic location. a pretty good base for a lot of things that go on between asia and europe. be it manufacturing, be it other services, it doesn't just have to be financial services. cyprus can build on the strength of its legal system, which is very much with the strong british influence. it doesn't have to be the russian money. it can be many other services in an area close to asia, close to the middle east where on cyprus, you get an eu supeuropean/briti

legal system. which for many providers of services is pretty good. even if many russians leave now, one big reasons for russians to stay on cyprus is once again if a russian brings money to cyprus and then invests it in russia it goes via the legal system of the eu and that helps. russian money is a type of -- not money laundering, but to take advantage of a legal system and that stays in cyprus as part of that. >> which when people talk about is it in cyprus's interest to stay in the eu, this becomes an important part of that. >> absolutely. >> it's one positive potential that could come out of this. we want to get to the market reaction, coming out of this weekend, let's get straight out to li sixuan keeping an eye on us for the reaction in singapore. good to see you. >> good to see you, too, kelly.

in fact, japanese stocks let losses in asia today pass yen climbs to a one-month high after a pullback from u.s. manufacturing. the nikkei lost over 1% today. exporters, especially technology shares took the brunt of the selling. ny conshares slipped over 3% on the news that the cameramaker is likely to post weak operating profits for the financial year. chinese shares dipped to a new year low. medical shares tumbled after yesterday's tort-led rally boosted for the h 7 and 9 bird flu. property developers gained for the second day as the new tightened measures are part of investors' early fears. that capital gains tax may apply to properties which you can trace the original purchase price. that is not very easy, given the country doesn't have a centralized database yet. the hang seng, however, ended higher by 0.3% with gains in

defensive sectors offsetting losses. the mainland banks hong kong listed shares were under great pressure today. elsewhere, sluggish u.s. data ask north korea played its war threats weighing on sentiment. the kospi lost 0.5%. australia's asx 200 managed to end higher by 0.4% after the rba left the door open for future easing. and india's sensex now still on the move, trading higher by 0.7%. back to you. >> sixuan, thanks very much for that. 0.7% higher. it's fascinating given what's happened with novartis. a mixed session across asia. a weak session in the u.s. weak u.s.an data. take a look at this.

stocks are trading off after the first session here after the holiday. up 0.6%. we are seeing advancers outpacing decliners by a four to one ratio. ftse mib is in the red, down 0.2%. the ibex is relatively flat. xetra dax is up 0.58%. the yield falling to 1.75%. italy and spain are getting a bit of a bid, so we're seeing yields fall there. but for spain, not quite back below that 5% level. australia came out holding rates steady. it didn't cut. that's suggesting perhaps that it's seeing some strength in the domestic economy. the aussie dollar is responding positively to that by 0.3%. sterling is weaker. the dollar/yen is seeing the

republican strengthen a bit, in fact. the euro/dollar is down about 0.1%. even though we're seeing pressure here, it's not being reflected in equities may have more to do with the ecb rate setting situations in further accommodation that could be coming down the pike. the european tone comes amid geopolitical tensions this morning. the u.s. is insisting there are no signs mobilizing its forces even though washington has positioned a destroyer off the korean coast. south korea's new president has called to a strong response to any attack. for the latest, let's get to jim meseda who joins us on the ground in seoul. jim, what can you tell us about the mood there generally speaking as we continue to get conflicting information out of the region? we'll tree to get jim back on

the like. in the meantime, we'll take a quick break. the royal back of australia is keeping the interest rates low. is the door open for more easing in the future? find out when we come back. welcome to the new new york state. what's the "new" in the new new york? a new property tax cap... and the lowest middle class income tax rate in 60 years... and a billion dollars in tax breaks and incentives. new opportunities for business. over 250,000 new private sector jobs were created over the last two years. and 17 straight months of job growth. with the most private sector jobs ever. lower taxes, new incentives, new jobs, now that's news. to grow or start your business in the new new york visit thenewny.com where will it send me... one call to hoveround and you'll be singing too! pick up the phone and call hoveround, the premier power chair.

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welcome back to the program. we've reestablished our connection with jim meseda who joins us on the ground from seoul. jim, there's been conflicting reports all morning to the extent to which north korea is acting aggressively towards the south. what can you tell us? >> well, i think the big news of the day is the reopening of that yong beyoung nuclear plan. that is going to increase high levels of tension here. when this relatively small plant, keep in mind it generated just enough plutonium for one nuclear bomb per year, it was shut down six years ago and it was seen as a huge victory for u.s. diplomacy. now it seems like leader kim junk unwho is so angry about new sanctions and the ongoing war games of u.s. and south korean forces that he's undoing any progress made in the past. that said, kelly, experts are

calling this move pretty symbolic. much of the plant was destroyed and would need to be completely rebuilt and that could take years. meanwhile, it is three days now since kim effectively declared war on south korea and the u.s. we've seen no signs of north korean troop mobilization. most analysts are telling us a full blown conflict between the north and the south is highly unlikely. still, taking no chances, the pentagon has confirmed that the u.s. guided missile destroyer, the u.s. mccain has been rooted in the pacific and is headed in this direction. the mccain is has been here before and is north korean activity from offshore, including any missile tests which are expected to be launched by the north koreans. back to you, kelly. >> jim, thanks very much for that. we know that's further

justification for or own aggression. nevertheless, as that continues, part of the reason why in there hasn't been much of a response on the ground indicates why there hasn't been much of a response in markets, either. we're seeing a slight jump in the aussie today. but the central bank's tone wasn't quite as hawkish as expected. matt taylor has more in this report from sydney. >> well, the reserve bank surprised few in the market today leaving interest rates unchanged at 3% as was expected for the third consecutive month. the central bank had been expected to adopt a slightly more hawkish -- with the company's statement. the rba said the policy stance remains appropriate, the bank says it's still watching its previous rounds of rate cuts, worked their way through the australian economy and adds that they are having an expansionary effect. but it also says it still has scope for further induction if

needed. the central bank says down side riske to global growth reduced and chinese bank has stabilized at a fairly robust rate. it expects to see the peak arrive shortly and is looking to other parts of the australian economy to pick up the slack. but at the moment, these are subdued outlook for the nonmining sector investment. the australian dollar and the broader market, the asx 200, we're little changed on the rba decision. that's the latest from sydney. back to you. >> let's get more reaction from hong kong from briek jackman. brian, great to see you. so the aussie/dollar, up about 0.3%. are you surprised generally by the resilience of it and the australian economy here? >> it is quite remarkable that the australian dollar has been so strong for so long. it is overvalued. we have had an impact on the

nonmining parts of the australian economy. it has been so strong for so long that the australian economy is starting to adapt to it. that's certainly what the rba has been saying in the last two months and there is some evidence of that view. just how persistent that strength of the aussie dollar has been and the fact that the australian economy is still posting reasonably softer growth. >> it comes at a time when we've got lows, concerns about china tightening and this market, which is typically seen as a high beta play on china is holding up well. >> i think you're right, it is very dependant on what's going on with china. if we were to see a big pullback in chinese growth, the aussie/dollar would come under pressure. but that's not our baseline scenario. we think we're still going to see some decent growth in china this year. it's picking up this year relative to last year. so in that environment, i do

think the downside for the scope for the aussie dollar is quite limited. >> and how much is the reflection in the atmosphere we've seen in your view just a reflection of the u.s. dollar. is that currency strengthening appreciably? is that why commodities might be softening here? >> yeah. i mean, that typically is the relationship that we do see. but also, i think the fact that, you know, there's still lots of concerns about europe, china, you know, you mentioned the fact that some people are worried about tightening of chinese policy and just, you know, other downside risks for the global economy still out there. i think it's going to prevent a big pick up in commodity prices. but if you look at the u.s. economy, we're pretty positive about that over the rest of 2013. and so we're sort of in a bit of a holding pattern until i think you get a clear idea of what is going to happen with policy, particularly from the fed and the ecb. so there is a lot in the mix at

the moment. we also think that flows through to the aussie/dollar. we have this range of 1.02, 1.06 is the most likely scenario for the aussie/dollar over the next six months. >> just a comment on some of those major forex pairs. we've got a ton of meetings this week, a big one at the bank of japan, the european central bank, the bank of england this week. so talk, for example, about the strong yen this morning. how much does that reflect the sense of disappointment that maybe the bank of >> pan doesn't deliver here? >> i think that's a real risk. at the levels that the yen has been trading at in the last few months, investors have been pricing very, very aggressive monetary reaction. the risk is that they will fail to live up to those expectations, or even if they meet those expectations, i think they'll be disappointed that

they haven't gone further. i think the pullback in dollar/yen that we've seen over the last couple of days, you can attribute it partly to some of the weak u.s. data, partly to the rhetoric coming out of korea, but i think also there is a sense that the boj is going to find it hard to deliver what investors have been pricing in for monetary policy. >> all the more reason to watch the nikkei here. brian jackson, good to see you. by the way, today on cnbc.com, a couple of stories to check out. we take a look at how the u.s. oil ask gas boom is shaping up with global orders. three u.s. states are producing more barrel a day than iran is export. experts say that could boost america's global influence. interesting development. u.s. president barack obama is the only person who can save europe. that's the opinion of one guest blogger. and all revved up, the city of

detroit may have been in dire straits, but ford and gm are in the best shape they've been in for years. there's more about that on the website, too. following a couple of market developments across the country, the greek index, in fact, was up according to reuters. but we are seeing some pressure coming now with the cypriot market is down 2.4% after opening down about 0.5% and multi depaschi is suspended gn. sgra straight ahead on the show, italy's president has formed a team of special advisers to help china break political dead lock. can these so-called wise men get the job done?

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welcome back to "worldwide exchange." these are your headlines. europe's manufacturing sector shrinks less than feared in march, but the country's growth engine in germany and france could contract further. spain suffers its steepest drop in five months. markets are higher after the s&p 500 falls on the first day of its quarter as concerns about corporate earnings wane. north korea vows to restart its main nuclear complex, a move

that could give it more nuclear weapons. japan and china voice their concern. here is a quick recap of where we're trading. europe is generally trading higher. still the case led by the ftse and the xetra dax up 0.6%. keep an eye on the ftse mib, now down 0.4%. that's double its initial move. we are seeing pressure on cyprus, too, now lower by 2.5%. and the italian banks in particular monte paschi suspended from trade after being down 8%. italy picked up a little bit. showed some improvement. we'll get to that in one second. we are waiting for the latest pmi data out of britain to show what's happening with the economy there. we're learning from countries around the globe, basically, just what kind of tone we started things off on with these sentiment figures.

it generally is a weak one. maybe better in some cases than the flash estimates we saw a couple of weeks ago, but europe is still deeply in contraction. both german pmis are below 50 which is that break even level. as the political impasse in italy continues, the country's president will meet with a group of so-called ten wise men today to draw up a number of urgent economic and political reforms that could be supported by all parties. over the weekend, president george napolitano said he would not resign before his term ends may 15th, but would instead try and work on the political standoff. it's expected his experts drawn from politicians on the right and left will propose measures to change the electoral system to prevent a future dead lock in the next election. alberto gallo joins us now. how kernd are you about the lack of a formed government in italy? >> look, i think this council of

ten wise men is something that is really meant to gain some time and potentially it will target -- it will identify a number of light reforms that a coalition government could do. we could have a coalition government. it's going to be a weak government, though, and i think that whenever there will be harder reform toes be done, like the labor reform, for example, this coalition government could fail. i expect it to be announced before year-end. i think there's a high probability of this to happen. >> speaking of coalition governments, we are just getting the uk figures out which showed the march manufacturing pmi below forecasts, coming in at 48.3, which is deeper in contraction, suggests more downward pressure on the british economy which is trying to avoid, i guess, a triple dip as some are calling it. alberto, coming back to italy, the underlying theme is clear. there's just not growth. and that's adding to the urgency

with which you need these economies to have a government in place. if fresh election res called in italy, why are markets still more concerned about it? is it the sense that italy doesn't need to push ahead right now, at least, with more of the monte led reforms? >> we'll be short on italy through the banks. and actually, if you look at bank bond yields, they've widened a lot. they're close to the highs that they were in november 2011. sovereign and bond yields have not widened. and for that, you need to keep in mind the ecb is keeping yields low with the omc. but we think there is more to sovereign bonds yields, as well. if you don't have a stable government, a country is not able to enter a program and to ask for omt help eventually. so the draghi put is not as valued as it was before with the government. i do think also the stalemate, the political stalemate, the political gridlock becomes

economic gridlock eventually. today unemployment was down to 11.6% in italy, which is a pretty good data point. but we think it will continue to go up and so will bank bad loans. we saw monte paschi last week suffering almost twice as much loss as expected because of bad loans. the gridlock continues. we still expect new elections before year-end. >> and i love your line on this, which is if italy -- if you can't solve it, you form a committee. >> yes, exactly. >> is that what you see is happening here with the ten wise men? yes. and i agree this is an attempt to buy time, which isn't too bad under the circumstances. monte has done a lot of the hard work of miking italian public finances sustainable.

what italy needs most now is not undo monte. so if we buy time, until perhaps new elections later this year debunk grillo, if we buy time, it may not be wasted time. >>. >> i was just in italy over the weekend, and there's sentiment among the public that monte is an unpopular figure and there's a lot of people who would be happy to see him go, who would be happy to see everything that he's done undone. >> yes, exactly. that's one of the reasons why it would not be good to have new electrics immediately. italy is still reeling from the pain of the monte austerity. but that is over. there are no new significant tax hikes coming. which means over the course of this year, the pain is likely to ease somewhat. then if you have new elections somewhat later, rather than

early, grillo and the protest vote may be less prominent and chances of getting a responsible government would be better later this year than now. >> alberto, quickly, do you think that's what's happening here is neapolitano is deliberately stalling to -- >> look, i don't know if grillo is going to get less votes and i don't know if the situation would be economically better in the year later. however, we don't want to have italian elections together with german elections or earlier. i think that's one of the reasons why they're trying to delay potential new elections. now, the economic situation is generally in a stalemate. the sentiment could be a little better if you wait a few quarters. but what monte did was mostly -- italy needs labor reform and its growth reform and liberalization of its orders and a lot of things that need to create growth. the -- what monte did was mostly cutting the fiscal spending and

cutting the fiscal situation in order. but that was only a first step. now, i don't think this would be undone, but eventually in the next one to three years, italy needs a bit of growth to become sustainable and he needs stronger reforms. so this is a sentiment to buy time. but eventually you need a stronger government for stronger reforms. >> that's a great point. and head to our website to find out more about what's happening today with the ten wise men meeting today. now, against back drop of political uncertainty across europe, one of alberto's latest notes show there's very little up side for equities throughout the region. alberto, we're showing the releveraging cycle, the credit cycle, where the u.s. is considered releveraging. but some of these other economies are still mired in things. how much de couplicoupling is hg

here between european and u.s. credit? i guess to the point we were just making, as well, you still see some value despite the weak fundamentals across the european region. >> that's right. because all these stable model through type of situation that we have, again, with cyprus, with italy, there isn't as much tail risk as there was before the ecb's actions. but at the same time, you don't have growth and is all these, you know, new situation points investors towards carry, towards the bonds, rather than towards growth and equities. in the u.s., we have a very different situation. i know we had some weaker data on manufacturing yesterday. but generally, there is job creation, there's credit creation, consumers have delevered and they're now spending. we see very positive signs in durable goods, in car sales. it is a strong recovery. so it is an equity recovery.

and the lag between the u.s. and europe, which used to be three to six months, is now becoming a year, maybe two years. so before we see strong recovery, especially in the periphery in europe, we need to wait a long time in my view. >> on that last noit note, what are you telling clients today? what are the trades you're putting on now? >> we're still long credit. in the u.s., we're fine with credit, but we don't like it particularly. we would prefer stocks. and within europe, we're cautious still on italy and spain. we continue to find ways of hedging with italy and spain both at the sovereign level and on banks. >> we'll leave it there. alberto, so good to see you. and by the way, to this point about the decoupling potentially between these two economies and even between stockes and credit, we will have lots more in the next hour that you won't want to miss on that. and ahead of its first policy meeting this week, the new bank of japan governor is

pledging to do whatever it takes to beat deflation fushiko has this story live from the nikkei. >> hi, kelly. he continues to talk deflation talk and now it's nearly time to see if the new boj chief kuroda can walk the walk. japan's central bank will hold its new policy board meeting tomorrow. and it looks like fresh easing steps could be on the agenda. speaking at a parliamentary budget meeting today, ro da affirms that he will use all options available to achieve the 2% inflation target in two years. the bank is expected to ramp up its bond buying, extending the bond it buys from the current three years. however, some policymakers are warning that the central bank could trigger a fighting bond yield if it buys too many government bonds. new deputy governor iwoka rejected the claim and said it's important that japan ensures its

bond yields do not rise due to investors demanding on risk premium for holding debt. he added that as monetary easing spreads to the economy, yields could eventually rise due to expectations that the economy will improve. prime minister shinzo abe toned down his demands to the boj a little, the saying he's not in the necessarily asking the boj too chief its price target at all costs. but he made sure to emphasize that it's important for the central bank to make efforts towards its goal, saying he will not rule out a revision to the boj law if it fails to meet its policy commitment. back to you, kelly. >> thank you so much. markets want more from kuroda. we'll have to see if he delivers. >> straight ahead on the program, it's victory for the generic drugmakers, but it comes at the expense of novartis. we'll explain what it all means.

boib to "worldwide exchange." corporate news out of japan, sharp says it's going to unveil its survival plans which investors have been waiting on along with full year earnings on may 14th. this according to sources reuters is quoting.

investors have about another six weeks to wait to find out both how sharp did in 2012 and what it's going to do to try to turn itself around. in the mean time, plenty of movement to keep an eye on. now, before the financial crisis and the investment bubble, investment clubs were all the rage. needless to say, their numbers have been press decimated in recent years. but just like equity markets, they're start to go make a bit of a comeback. jane wells reports. >> investment clubs at one point numbered in the hundreds of thousands more than a decade ago, and then they nearly disappeared. but not completely. who hung in there? 20 women north of los angeles. why all women? >> i don't know. it's just easier. >> terry ericsson started this investment club in 1997. the women pooled their money together and over the years, they've made more than they lost, even meeting warren fwuft. on this day, they debated what

to do about apple which they have traded all the way up and all the way down. >> i'm an apple person, so i keep pushing for the apple. >> i'm bearish on buying more apple. >> we've bought and sold, bought and sold. >> i feel sometimes we sell too soon. >> keep and it buy more. >> the women are concerned their trading strategy needs to change. >> in the last year or so, we've lost a little bit of our mojo. >> thousands of miles away outside of chicago is darchbt investment club relatively new funded by nick fosso. in this club, members do not pool their money together, but trade ideas for their individual portfolio. >> my 401(k) has basically recovered everything that i lost in 2008. >> i wish i had, you know, known this stuff five or ten years ago. it would save me a lot of money. >> what now? >> both clubs think the markets are due for a correction.

when even investment clubs think the market has peaked, you have to wonder. in los angeles, i'm jane wells. >> is the remergence of these investment clubs a sign of the bottom or top? nevertheless, the latest survey of individual investors are quite bearish. tell us what you think by e-mail, worldwide@cnbc.com. you can tweet us@cnbcwex. mon at the depaschi is now down on bad quarter results. the news continues to get worst for what is apparently one of the world's biggest banks. its shares are already trading at a pretty low value. meanwhile, u.s. banks are reportedly considering how to mitigate the fallout from new stricter rules on eu bonuses.

according to financial times, foreign banks in london are looking for ways around the restrictions, including reimmune rating their packages. the new package comes into force next year. for non-eu banks lie citi citigroup, jpmorgan and morgan stanley, the rules only apply in europe which is why they could be considering big moves. glenn core's tie up with xstrata is facing another round of delays. now the completion date of the $76 billion merger has been extended for the fifth time on regulatory concerns relating to chi china. the ministry is concerned about the interest rates the combined company will have. now, india's top course has dismissed a crucial patent indicate from novartis. the swiss drugmaker was hoping to win production for its cancer

drug libex. carolin, looking well rested and recovered from covering the story in cyprus there, but you arrived back home only for another bit of trouble. what's going with novartis here. >> well, this is a decision by the india supreme court that was pretty much expected. that's what analysts are telling me this morning and that's why shares of novartis are not reacting to greatly this morning. novartis is up by 0.4 % in line with the market. now, this specific drug, this is a cancer drug, it's not too important for novartis in india, anyway. keep in mind it is losing patent protection in the rest of the world starting in 2014, anyway. why this is so significant? it is because it is a benchmark for other intellectual property cases in the world, maybe not just india, but also in other ee

mermging markets. take a look at roach and pfizer, for example. they're still engaged in similar disputes in india and all the big pharmacy disputes. they're hoping to boost their sales in the emerging markets because they're still in developed markets and growth. let's talk about some of the ramifications for the big pharma companies. they cannot hope to make as much money in india, for example, going forward. but it is a big, big boost for the local drugmakers who can make those generic drugs and they can sell them at a tenth of the price. it's also a big victory for those patient necessary india, for example, who simply can't afford the patented drugs. >> i have to say i'm surprised by that response. up 0.5%. basically health kay broadly today up about 0.7%. anyway, good to see you again, carolin. thanks very much. staying with india, india's finance minister says the country is redoubling its efforts to increase foreign investment.

kaori enjoji spoke with him and asked him house ee concerned about the red tape foreign investors must overcome. >> i hope to be able to convince investors and industry captain that we are open to bes. we have always been open to business. some concerns that were made in the last couple of years after the lehman collapsed, we were addressing those concerns. in fact, we are addressing many of those concerns. and india's potential growth status is above 10%. therefore, it's in the interest of the japanese industry and japanese investors to look on india as an attractive destination. many japanese companies have been in india for nearly a hundred years.

>> how critical is it for india to attract more foreign direct investment at a time when the current account deficit is up? >> in fact, both goes hand in hand. it's because the current account deficit is high we are to redouble our efforts to attract foreign investment. example, last year, we have nearly 6 billion dollars of fdi. i said yesterday that india can easily absorb $50 billion a year, fdi aloep. over and above that, we have foreign institution investment. and to the extent of you on companies can bottle abroad, we encourage them to borrow what we call the extent of commercial borrowing. so i think the fact that we have a large current account deficit compels us to create a regime that is friendly and attackive

to foreign industry. >> in some ways parallel with japan, they tried to re-engineer the value of the currency. and to some extent, successfully over the last several months. is this an option? is there more option for india at this time? >> well, i think depreciating the currency is not the first option. the japanese situation, as i understand it, is very different. you've had a trade surplus of many, many years. it's only last year, i think, very small trade deficit. and you have a very mighty manufacturing engine. you can always convert that into a trade surplus. we have a trade deficit. add to that we have some imports which i would like to avoid, for example, gold import. but our people have a particular attachment to gold and we have

large gold imports. and we have import for defense equipment. so the current account deficit is very large. the current answer to that is exports. exports are a way to pay for imports. nevertheless, i think by depreciating the rupee -- well, i know the people have suggested that if you would depreciate the rupee, we will slow down imports. but that may not work. that may not work in a country that is dependent on oil imports. we import corn, we import capital goods, cooking oil, these are very essential imports. and i think the fact that the

rupee appreciates may not slow down these imports. in fact, it may lead to the exact opposite result. namely, our import bill will be up in rupee terms. so i am not sure whether depreciating the currency is the answer to the current account deficit. >> do you think rates have room to decrease further now? >> well, i think so. i think so. we see the jennings of green chutes, more inquiries for loans, more project proposaprop stalled projects, people are beginning to invite them. i think at this time, perhaps there is still room for cutting interest rates. but let me add that is a call the government has to take. >> and here is a look at what's on the agenda in asia tomorrow. the bank of japan has its super important two-day meeting that

convenes tomorrow with the new governor at the helm. we've been discussing the market response ahead of that meeting all morning. the yen is strengthening. thailand central bank is due to release its policy decision and economic data around the region, including china and india's services pmi. so with all of that happening, also with lots of central bank meetings in europe and the u.s. payroll report friday, holger, what is a person to make of on it? do we start with the pmi dealt which we're learning in april maybe suggests that perhaps global growth is peaking? is it too much to suggest that? >> i think it's too much. global growth probably isn't peaking. we are in a global growth environment and we're learning this isn't changing much. europe having a setback after a fairly good run. it all adds up to mediocre

growth and the eurozone not coming out of recession. as we learned from le britain today, britain is probably stag nating. >> what's different about the world today relative to, say, 2007? i know in some ways it's an obvious question. but in some ways, it still feels like the u.s. and china are the economies with momentum that are sort of the marginal factor out there. >> the u.s. and china are the economies with momentum. but the big difference is in the u.s., we are looking for growth around 2%. because they are in a period of fairly lean years. in china, growth is strong but as they have advanced over time, become a bit less -- now growth is 8% rather than 10% in 2007. and as for europe, we are making a lot of progress in repairing fiscal balances and competitiveness at the rim of the eurozone. but that process is painful and

the pain will apparently last two parts of this year. >> do you worry that europe is getting less behind? >> actually, not. europe is partly looking so weak on the business cycle because it is doing the fiscal repair and the structural reform. >> is it, though? is it really, though? >> yes. we have seen serious fiscal tightening on the europe periphery. that is hurting. 3% worth of italy and spain last year. the key reason why the eurozone looks so weak is that the eurozone is not dodging the bullet. it is actually doing the structural reform and the fiscal repair which the u.s. needs, as well. >> perhaps, then, some better news, what, in five years' time, at least? >> in five months time. >> thank you very much. chief economist. we'll be right back. a new property tax cap... and the lowest middle class income tax rate in 60 years... and a billion dollars in tax breaks and incentives. new opportunities for business.

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1k8. welcome back to "worldwide exchange." europe's manufacturing sector brings less to fear in march, but france and german contract further. still, european market inch into the green after the s&p 500 falls on its first day of the quarter. all this as concerns about corporate earnings weigh. and shares of monte depaschi plunge after the bank suffers a birth than expected loss. this after the president hopes a

committee of wise men can break the country's political dead lock. and north korea vows to restart its main nuclear complex, a move that could give it more plutonium for weapons. japan and china violencing their concerns. >> announcer: you're watching "worldwide exchange," bringing you business news from around the globe. so it's the second trading day of the month -- or of the quarter, i should say, for u.s. indexes which yesterday had an extremely light volume. a bit of a rebound takingshape, taking fair value into account. small index, small gains, as well, for us nasdaq and for the s&p 500. reports continuing to see whether the index can break its nominal highs. look, though, at what's been happening across the world. it's an interesting session. after the weak tone yesterday, asian sessions were okay. then we have europe. the cnbc ftse global 300 is

broadly up 0.2%. given the weak pmi figures and the sense of concerns out of the u.s. when its own pmi fails, you might expect a worse open shaping up. it's not too bad. right now, the ibex and mib are both negative. the ftse is supported by a expect of specific names such as i cap. looking at the bund, selling off a bit, yield up to 1.29. so still extremely low levels. italy, 4.72%, so not much movement despite the weak trading in monte depaschi. the euro/dollar is still strong. stronger aussie/dollar. the yen strengthen i by about 0.1%.

the latest pmi data disappointed falling further into contractionary territory. china's pmi data was okay. let's get market reaction from li sixuan who joins us from singapore. >> thank you, kelly. in fact, the largely directionalist day in asia had major central bank policy decisions later this week. the nikkei lost 1% after the yen climbed to a one-month high against the greenback after a pullback in u.s. manufacturing. exporters, especially technology shares took the brunt of the selling. nipon slipped over 3% on the news that the cameramaker is lickly to post profits for the financial year. in china, another year-to-date low for the shanghai deposit. the losses were captured by policy for a second day. the 20% capital gains tax may only apply to properties which you can trade the original purchase price. that's no easy task given the

country doesn't have a computerized system yet. the hang seng, however, added 0.3% with gains in defensive sectors offsetting losses. the mainland banks, hong kong listed shares came under great pressure. citic bank tanked. the sector continued to lose ground after tightening rules. elsewhere, north korea weighing on sentiment, the kospi lost 0.5% today. and we did hear from the rba which helped keep rates steady, but kept the door open for future cuts and that kept the asx 200 above water. india's sensex just closed, ending higher by 0.8%. overperforming the rest of asia. >> thanks for that. stocks in europe trying to keep their positive momentum, but u.s. equity markets were the standout performers in the first quarter.

stocks shrugged off spending cuts to hit fresh all-time highs. the dow broke its record close on the 5th of march. the s&p 500 finishing above its all-time closing high on thursday. the real question is whether the momentum continues into the secretary quarter. brian reynolds joins us now. he's chief market strategist at rowsenblack securities. great to see you. >> good morning. >> looking for direction here for the equity markets, we can look to credit. it was a strong first quarter in credit, as well. what are you seeing in terms of market activity in these last couple of trading sessions. in terms of what kind of start we might see to the second quarter? >> well, in the very short-term, there's very little liquidity in the bond market. but as this quarter goes on, i expect the intensity of this credit boom to ramp up even more because our nation's pensions, which are driving this credit boom and have been for the last four years have this need to earn 7.5% and a sub-1% world. and we're seeing more tensions, both to put more money into

credit. so i think that's coming down the road in the next one to three months. >> and how would you put what's happened in cyprus into context here? i believe describing what's a wrinkle, but nothing more? >> i'd say it's a bump in the road. we've seen over the last three years crisis after crisis come out of europe. europe is structurally imbalanced. they've been living beyond their means. they've been reliant on the on bond market to finance their way of living. and now, the main buyers of bonds, their banks, have been running out of money. so we've been running through these crises from time to time. the thing, though, is that europe keeps find ago way to kick the can down the road. and i think they'll be able to do it over the next number of years. >> so earlier, we had alberto gallo on the program made an interesting point. he said they prefer credit to stocks in europe and stocks to credit in the u.s. >> i think that's a good way to look at it. we've seen a number of

distressed debt funds start to set up shop in europe because there are some bargains in europe and we're seeing those large institutions start to take a toe hold in european credit. on the other hand, in the u.s., i would prefer equities over credit. however, our nation's pension funds are doing it backwards. they put mow more money into credit. that's going to lead to an intensification of the credit boom. they're doing it backwards. >> you say they're doing it backwards, but if we just had a quarter with the s&p up 10%. unless we have a 40 on% year, wouldn't it be prudent for them at this point to allocate away from equities, even if they've sort of missed the boat now to this point, is now really the time to pile into equities? >> i think it is. while a 10% quarter is nice and it's going to be tough to replicate that every quarter for the rest of the year, i still

think there's a significant upside to stokes. what's been driving stock tess last four years have been buybacks. buyback announcements have accelerated. all other investments have been net sellers. this year, we're starting to see less selling. if you get more buying from the buybacks and less selling from the others, you could have significant gains ahead in the stock market. >> and, breen, what you're saying is that the credit to these levels point to the s&p at 2,500? >> if you look at the earnings yield on stocks, the inverse to the pe and relate it to the yield on junk, stocks would have to be over 2500 to match what credit has done in the last four years. that tells me there's little upside left in credit and only downside risk in credit. so i would prefer to be. >> stocks than in credit. but pensions have this perceived need to avoid the volatility of stocks. that leads to this credit boom. >> we want to pick up on this exact point. brian, don't go anywhere.

i want to get a couple of news stories out in the meantime. another sign of market recovery in the u.s. as investment clubs are reportly making a comeback. groups of small investors which pool their money and try their hand at the stock market have started growing. jane wells gave us some info about them in the last hour. so we've been asking is the remergence of these clubs a bullish or bearish sign and more importantly, would you join us? have you already? e-mail us or tweet us. anyway, let's take a look at some of the other top stories. the nasdaq is diversifying its portfolio. the exchange is buying electronic treasuries, trading platform ec from bg partners for $750 million. the deal gives mass dak more exposure to income. reports suggest nasdaq and bgc have been in talks about a possible deal for a few years. but the discussions heated up late last year after international continental

exchange discussed its rival. an international judge is questioning the fairness of citi groups's proposed $590 million settlement. accusing the bank of hiding millions of dollars in toxic assets. the judge is asking both sides to justify several requests and the last of payments by former sdi executives chicago one time ceo chuck prince. citi shares are down about 1% in trade today. that's underperforming the market by almost two percentage points today. michael dell making a pitch to employees for his proposed $24 billion buyout. in a letter filed with the s.e.c., the pcmaker's founder and ceo says he's more energized about the future and the company's best days are still ahead. dell's comments come after the risk of staying public and outlines bleak prospect. making the case to his employee sess why he wants to take the

company private, what he would do there. dell shares weaker today down about 0.8%. coming up after a quick break, it's the credit bubble round two. find out why the queen's bank is warning clients that a storm is brewing in high yields. we'll be right back. [ male announcer ] how can power consumption in china, impact wool exports from new zealand, textile production in spain, and the use of medical technology in the u.s.? at t. rowe price, we understand the connections of a complex, global economy. it's just one reason over 75% of our mutual funds beat their 10-year lipper average. t. rowe price. invest with confidence. request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefull.

welcome back. some geopolitical tensions keep you informed of this morning. north korea has vowed to open its main nuclear complex. while it's unclear how quickly the plant could restart, both japan and china have voiced their concern over the threat. for more, joining us now from seoul is nbc's jim meseda. jim, great do you see. how much of this is just the typical heated rhetoric rehear out of north korea and how much of it suggests people should be taking these matters more seusly? >> well, i think everybody should take this seriously. the south koreans certainly are taking it seriously, although it's hard to get that kind of reaction or any reaction from them. they work and they come home and they go to work the next day. but there's certainly an underlying tension here and anxiety. the reopening of that plant has to increase already high levels of tension here. you know, when that plant, a

relatively small plant, if you recall, generated enough blue tone yumm for one nuclear bomb per year, when it was shut down six years ago, i can remember it being seen as a major victory for u.s. diplomacy. it now looks like the leader, kim junk un, who says he's extremely angry about new sanctions slapped on the country and ongoing war games with u.s. and south korea not far tr here, it looks like kim is undoing any progress he can get his hands on and that was made in the past. that said, kelly, experts are calling this a more xwolic move. the plant was partially destroyed, it would need to be rebuilt and that could take a number of years. meanwhile, we are day three after kim juong uneffectively declared war on south korea and the united states.

most analysts do agree that the full blown contact between north and south is highly unlikely. still, the pentagon is taking no chances. they're sending the uss mccain, that's a guided missile destroyer to the region just in case. back to you, kelly. >> jim, thanks very much. we should just mention, as well, the kospi is down about 0.5% today. if you're just joining us on the program, these are your headlines. eurozone activity contracted further in march hit by ongoing pain in spain. north korea fuels more fears says it will restart its nuclear reactor. and can u.s. markets kick off the second quarter on a cautious note amid fears for corporate earnings. well, are we in the middle of another credit bubble? kuntz is warning investors to

brace themselves. the scenario that can implode if and when yields rise. and this warning comes just as goldman sachs has launched a new specialty company to invest in high risk debt. the focus could be companies with no credit rating. we wonder how this all sounds. no one better to ask than brian reynolds. perhaps starting with the goldman news, wa do you make of it? >> the goldman news is a progression. i've been saying for a number of months that the credit boom is going to intense tie. and now the wall street banks are looking for way toes participate in that. by launch ago business development company, it's a great end run around these new financial regulations that were formulated in the last couple of years. >> it's interesting, too, that goldman still see these credit cycle as not being over. what does that mean for the

months and maybe years ahead? >> well, there is not a credit bubble. there's a credit boom. we're rolling in the fourth inning of this boom. we're seeing more demand, we're seeing increasing demand from the tensions that drive these credit markets and have for the last 20 years since john merryweather launched this fund. while it seems it's been overdone to the casual observer and when interest rates go up it's going to end, we found if you go back to a time that credit boom intensifying once yields start to go up. so we're not even at that point yet the. >> that's a great point to make. i want to come back here to koutts. are they wrong about an imminent collapse potentially in some of these markets? >> they're right that yields will go up at some point, but they're wrong about an imminent collapse. credit booms become more intense when yields start to go up. that's when those pension funds and the john merryweather time of funds that they hire, they invest more aggressively to make

up for the losses that higher yields generate. if you look back at the other funds, come after the fed begins to tighten. and we're not even at that point yet. >> it's almost a scary taught. your point is so interesting, as well, conceptually. what you're saying is from all of the prudent investment strategies with people putting their money into 401ks, putting their money into tensions, this is what is ultimately driving the market tiftd we're seeing, ultimately making it so a lot of these risky companies can borrow at super low rates and reinforcing this troubling equilibrium we find ourselves in. >> today is the day after april fools' day. and it seems to many investors that the last four years have been one big april fools' joke. that's true because the reason stocks have gone up so much is because of this financial engineering. but our work indicates that even more financial engineering coming down the road. and, yes, it will end badly some day. this is a credit boom. credit booms always end badly,

but typically not until people become overleveraged and margin calls go out that kent be met. and we're nowhere near close to that yet. >> brian, stay there. we'll come back to you at the bottom of the hour with a little bit more on corporate earnings resurfacing as a concern as they always seem to do this entire cycle. nevertheless, venezuela's election campaign kicking off today ask chavez's protege is the man to beat.

the presidential election campaign in venezuela kicks off today. the successor and political heir nicholas ma did you ro is leading in the polls. and has vowed to extend chavez's revolution. for more on what to expect out of that's elections and what it means for oil elections, let's talk to james lockheart smith. >> hi. >> even though the elections are only a couple of weeks away, what do you think is the outcome here? >> i think they're preparing for

a vicker ontotory for nick laws you ro. these will be nervous times for the supporters of the government. that said, i don't see caprillo's winning absolutely. i wouldn't rule this out. it's certainly true that a short campaign is not as charismatic candidate. venezuela is suffering from shortage of dollars. it has a very large consolidated fiscal deaf set. the central government deficit. that will have changed slightly following the valuation. but its overall situation is still pretty tough, i would say. >> do you think either candidate would significantly change the course? >> i think if capriles won and was able to get the victory, you would see a gradual unwinding and improvement over the medium

term. but it takes a longer time to turn around and he would be very cautious even while unwinding a lot of the nationalization. >> why should the global investor care right now? >> i think that in -- assuming the government candidate wins, nicholas madura, six, 12 months down the line, you may be looking at possible change increasing opportunity for private investors forced by the economic situation or greater disagreement. if capriles wins by a margin, which i don't think is likely but it is possible, you have to look at the short-term political crisis and the results not being respected. that scenario could have an interesting impact on supply. >> can the same be said, you mentioned high double digit inflation for argentina, which continues it seems to crowd out

private sector. >> yeah. argentina took a markedly less business friendly turn a couple of years ago when president fernandes was re-elected. we've seen an escalation of the government where the government is not adopt ago central position on inflation, which is the under report the figures, you know, introduced with the price and various basic goods which is going to exacerbate the risk of an inflationary spiral and growing. it can depend on strong commodity exports. but it's still in a tough situation. >> and to some degree, it's a template tore what is happening in europe. the country is standing firm on its decision to repay just $1.3 billion to hold out bondholders from its default years ago. that amounts to one-six of the compensation critters a entitled to. this all dates back to 2002 when the country defaulted on a record $100 billion in sovereign debt. so it's trying to basically repay just 1. 3% of that.

>> which is a ridiculous haircut. there's no way that's going the be accepted. there was an appeals hearing last month. argentina said, we'll respect whatever the court says as long as it agrees with us. >> henry ford, you can have whatever color car you want as long as it's black. >> exactly. the problem is argentina won't have the funds to pay everybody at once, which it's required to do. and whatever the legitimacy of the court, by no means, there's a lot of debate about whether it's a good or bad thing. the consequences is for argentina in the medium term will be quite significant. >> and continue to fan a lot of the kind of political tensions we've seen between argentina and the u.s. to some extent. by the way, all of the anniversary of the full cans, as well. >> that does play a role. they're not directly connected, but what we see and the terms of the proposed authors to pay

back, that's very much directed at a domestic constituency. a lot of short-term thinking here. >> not point to go a good outcome. wish we could leave it on a better note. thanks for stopping by this morning. >> thanks very much. straid straight ahead on the show, shares of big global automakers could be set to shift into second gear as sales keep revving up. we will go under the hood and is check out the latest on the sector when we come back. welcome to the new new york state. what's the "new" in the new new york? a new property tax cap... and the lowest middle class income tax rate in 60 years... and a billion dollars in tax breaks and incentives. new opportunities for business. over 250,000 new private sector jobs were created over the last two years. and 17 straight months of job growth. with the most private sector jobs ever. lower taxes, new incentives, new jobs, now that's news.

to grow or start your business in the new new york visit thenewny.com

welcome back to "worldwide exchange." if you're just tuning in, i'm kelly evans and these are your headlines from around the world. europe's manufacturing sector feared less than expected in march. but france contracts further. still, european market inching higher after the s&p 500 drops on the first day of its quarter. all this as concerns about corporate earnings weigh. north korea vows to restart its main nuclear complex. a move that could give it more plutonium for weapons, both japan and china voicing their concerns. the u.s. auto sector getting into gear.

>> announcer: you're watching "worldwide exchange," bringing you business news from around the globe. okay. and as we gear up for the first trading day of the second quarter, in europe, at least, let's take a look at u.s. markets. yesterday they started off their quarter relatively weak. looking to rebound today. it's a couple of points higher for the nasdaq and s&p 500, as well. the cnbc ftse global 300 gives us a sense of what's happening overnight. kind of a mixed bag. there was weakness in shanghai and is japanese markets, though. europe is providing strength at the moment. the ftse 100 now up almost 0.9%. a couple of names there in particular like icap helping to encourage play. the zelt ra dax adding 0.6%. the ftse mib is weaker, too. just how do you make money in these markets? here is what some of our guests

have been telling us this morning. >> people like me got the timing wrong because we thought commodity prices would give 18 months two years ago and we've been amazed that they haven't. they seem to be going down reasonably quickly now, but we think we may have a lot further to go. >> we don't like government debt and we don't like cash. so the question and the differentiation comes from wa do we like and what are we -- what i was suggesting people buy. and one of the things that we do like is short dated corporates and there we think there is a nice pick up here in yields and even though you've seen a compression of spreads, we still think there is further opportunity there in some corporate debt. >> we'll be short on italy through the banks. and, actually, the bank bond yields have widened a lot. they're close to the highs that

they were in november 2011. now, sovereign bonds yields have not widened and for that we need to keep in mind the ecb is keeping yields lower. but we think there is more downside to sovereign bond yields, as well. >> now, as mentioned, automakers report march u.s. sales today. criesly kicks things off at about 7:00 a.m. eastern. analyst expects sales to drop to a seasonally adjusted rate of 15 million units for the fifth straight month. ma could be the best month for the industry in more than five years. michael, thanks for your time this morning. who is best positioned here? it sounds like there's strength across the board. >> thanks for having me. yes, right now, the u.s. industry is in a sweet spot. sales continue to move higher. i think more importantly, they're at a slow and steady pace from a historical basis staying somewhere right around 15 million units, which is very positive for the industry longer term. >> there was a sense wouldn't

necessarily get back to 15. the peak was 17 million back in 2000, maybe. the new normal with longer lives for cars than being more fuel efficient and people shifting behavior could have been something below that level. do you think we're stabilizing here around 15 million? basically, is this as good as it gets? >> if i was me, it would be very good. when you look at underlying industry fundamentals, they're probably better than they have been in 30 years. about 40% of vehicles on the road are now more than 12 years of age. i think one of the things that's important for the industry is the capital need, capital uses of peak in the industry can be just as disruptive as the downturn. >> wa do you mean by that? >> basically, when you start to reach peak levels, 17 million units, 16 plus, one of the things that occurs is the industry in capacity and fixed cost and the cost structure gets inflated. and then if the cycle turns down for whatever reason, it's very difficult to shed some of that

excess cost and that's when you see the sharp losses that we see in the last downturn. >> are you worried given the availability and strength that we've seen in auto financing that that is driving demand to levels beyond which you would like to see them for the long her term health of the industry? >> financing is critical to auto sales, no question about it. but i think right now it's very healthy. there's plenty of credit available. industry sales from a fundamental standpoint underlying demographics suggests normal demand somewhere between 14 and 16 million units on average. right now, we're right at the mid point of that range and that's a healthy level of demand where the industry can make strong levels of profitable. >> what is the outlook for detroit's big three at this point? in chrysler, it sounds like it kicks things off this morning. >> chrysler is usually the first out of the box. ford is probably right after 245. from our perspective, if they can hold market share over the next 6 to 12 months, their capacity is perfectly aligned. right now for the first time

that i've ever seen it, you're getting positive price on a per unit basis and costs on a per unit basis are going down. that's very positive, obviously, from an earnings perspective. >> what about the fact that the yen is weakening? does that not give japanese rivals the edge especially after toyota comes back from its really woes? >> certainly the yen exchange is a plus favoring the japanese based manufacturers right now. but i think if you look at what the trends have been over the last two years, the foreign based manufacturers are relying on the u.s. or north american markets for more of their production. and so their cost base is also in dollars. from that perspective, it tends to balance out. in addition, when you look at the longer term behavior of the japanesed based manufacturers, they're always very much they rely on what the residual values are. if you start to discount too heavily, that disrupt that's equation. i think wa you'll probably see is the japanesed based manufacturers, add content to vehicles and that's one way to

increase value to consumers. >> is it the u.s. market that is still driving share value or is it what's happening in europe, what's happening in china, their ability to penetrate or take advantage of the conditions overseas? is the u.s. story priced in? >> not really. i think what you're seeing is the headlines from the european market are certainly one of the things that are affecting the valuation for both general motors and ford. but when you look on a global perspective, the north american market should have report profitability over the next couple of years. the european situation is manageable. last year, they took some very aggressive actions to again republicantory down both from a unit standpoint and value standpoint. the chinese market is very strong and the south american market remains volatile, but it has been growing and there's a good outlook over the next two to three years from that region, as well. >> i just want to bring brian reynolds into this conversation. brian, i mentioned this point about auto financing earlier, and i wonder what kind of conditions you can speak to about financing availability in this market.

>> it's unlimited. auto loan securitizations, asset-backed securities, they're back to the all-time high. in 2010, i pointed out that gm and gmac helped drive the last credit boom with their subprime activity. in 2010, gm took our tax dollars and bought amare credit, a subprime lender. autos have come all the way back. that's helping to contribute to the auto sales because four years ago, during the crisis, there was no financing availability. now it's unlimited. >> michael, last word here? >> no, listen, the financing is critical for vehicle sales. in the united states, about three-quarters of every unit sale is based on financing. so a lower percentage of that is going to be subprime. but no question that the downturn was largely triggered by the collapse in available financing for the industry. >> well, you can just see it all

coming down. i love that when you can connect one story on the other, the credit boom and the strong auto sales we're seeing. thank you both, michael ward, brian will stay with us. we're going the take a quick break. but coming up, the u.s. government giving the health insurance sector a major shot in the arm. find out more. we'll be right back. zap technology. arrival. with hertz gold plus rewards, you skip the counters, the lines, and the paperwork. zap. it's our fastest and easiest way to get you into your car. it's just another way you'll be traveling at the speed of hertz.

welcome back. keep an eye on health care stocks today. bertha couples joins us from cnbc global headquarters with the latest. hey, bertha. >> hey, good morning. how are you, kelly? we got a ruling yesterday, highly anticipated from cms, the center from medicare and medicaid services. in a major reversal, it now projects medicare advantage plan growth of more than 3%. this is huge. a very big relief for the 14 million americans who purchased the enhanced medicare plans from private insurer. there were concerns that some insurers might exit the program after cms originally projected 2.2% rate cut for 2014. based on the expected position fee cut that are required by statutory medicare growth formulas. but after intense lobbying from

insurers and senior groups, the agency, instead, is now modeling for no physician fee cut, assuming that congress will find a so-called doc fix to avert them just as it has for the last ten years. the decision came after the closing bell. shares of medicare advantage, providers like humana going into the end of the day, cms was widely expected to reverse itself. analysts say the rate increase was about 500 basis points better than was actually expected. humana with 60% of its revenues from the medicare advantage plans was hit hard after the original announcement back in mid february. shares surged back to those preannouncement levels and is are set to open at a two-month high. high. in germany this morning, humanaá shares are are trading higher as are those of etna and united. etna and united is a continue to get the gains that they saw after hours are likely to open at a new year high this morning.

karen ignani, the president and ceo of the insurance lopby praised the decision yesterday saying cms has taken an important step to help stabilize the medicare advantage program at a tight when the program is facing significant challenges. those challenges include rising medical costs and also the fact that next year, kelly, we will see new insurance taxes on plans in order to help fund the affordable care act rollout, otherwise known as obama care. but certainly a very positive ruling for the insurers, a lot of folks praising it. though not a huge surprise after the lobbying effort. >> bertha is supporting health care stock here in europe which is up about 0.6%. bertha coombs from the ny -- or from the cnbc global

headquarters this morning in new york. eurozone manufacturing activity contracted further in march hit by ongoing trouble in spain. north korea fuels war fears, saying it will restart its nuclear reactor despite warning from the incide from the international community. and here is a look at today's other top stories. carl icahn is back ate. the billionaire investor has disclosed investments in nuance communications. apple usesnce part of the iphone. on monday, nuance will launch a voice activated ad. shares in germany up nearly 6% in frankfurt trade. and a federal judge has ruled the city of stockton, california, is eligible for chapter 9 bankruptcy. the judge dismissed auditors.

the city didn't exhaust every attempt to seek concession. he said investors failed to negotiate in good faith. tights largest u.s. city ever to file for bankruptcy. it could set a legal precedent for others that are cash strapped. charlie kindle did leave microsoft in 2011. am zone won't say exactly what his role will be, but on his linkedin page, kindle says he's the director of, quote, something secret. he says he's looking for testers with cloud and mobile experience. amazon shares down more than 11 % in frankfurt this morning. really underperforming the market. not liking that kindle news or something else. anyway, u.s. banks reportedly considering how to mitigate the fallout for more stricter rules on bonuses. foreign banks in london are

looking for ways around the restrictions such as restructuring their remuneration package. it comes into force next year. for non-eu banks, the rules will only apply to europe. now, u.s. stocks kick off the second quarter in the red after disappointing manufacturing data. but with investors counting down to earnings season, where will we go from here? we'll discuss when we come back.

welcome back to the program this morning. since it is the first trading day in europe, we have been learning some manufacturing data, at least in terms of pmi surveys not just from europe, but frankly from other markets, as well. china and japan out overnight.

japan was weaker, china was okay. the message from europe is the 46.8 was final reading versus 46.6 forecast. so it was up just a touch, but well into the contractionary territory. there were some worried signs too with the spanish manufacturing data and the irish manufacturing data showing one of its biggest drops in export orders since 2009. while the german and french data was okay, it still remains in contractionary territory. the ftse 100 is adding almost 1%. the xetra dax in germany almost 0.8% and the cac 400.7% and the ibex has turned positive. we were keeping an eye on cyprus. losses up better than 2%. that was the latest we saw. meanwhile in italy, pressure on banks in particular mon at the depaschi after disappointing

results and drops on deposits. february factory orders out at 10:00 a.m. eastern. expected to show gains of 3%. charles evans speaks later this morning about monetary policy. as for earnings, look for numbers from spicemaker mccormick and global payments. we'll get u.s. auto sales data which as you heard if you were with us earlier should be pretty strong. now attention is shifting to the next earnings season. let's get some thoughts here with us still brian reynolds, chief market strategist at rosenblatt securities. brian, to can earnings matter? >> earnings matter in the short-term. but the credit boom has propelled earnings per share higher. that helps the longer term, as well. wa we're seen from the last number of earnings seasons, and i think we'll see again, is that revenues disappoint because this is a slow economy. the economy is improving a little bit, but it's still the slowest economic expansion since world war ii. so you can't expect revenues to

outpace economic growth. but werings per share have outpaced revenues because of all the buybacks. we've done a trillion dollars worth of buybacks and that's a direction function of the credit boom that we're in. >> so are you suggesting that the earnings growth that we've seen, which has been quite strong, is financial engineering to some extent? >> exactly. and that's a hallmark of a credit boom. the tensions need to maybe 7.5% in a sub-1% world. so they put tons of money into credit, funds with john merryweather's style of corporate buying. when they purchase those bonds, it puts tons of cash on the corporate balance sheet and that cash gets used from buyback. and we've taken out a trillion dollars worth of stock from buybacks during this credit boom. and when you have fewer shares outstanding, that means your earnings per share go up more quickly than revenues do. >> do you see any sign that this is start to go peak now that we've been through this period? might there be more driving the market this year? >> no. we're starting to see it

accelerate. .i believe it's going to accelerate even more later this year. so when we come back in six months, when we look at two earnings season forward, we're see even more of this activity going on. so far this year, we've seen buyback announcements start to go parabolic because we've seen tremendous issuance of corporate bonds and structured finance. and that money hasn't hit -- the rubber hasn't hit the road yesterday. those are only buyback announcements. when those buybacks start to kick in in three, six or nine months, you're going to see earnings per share increase even more because it will be even fewer shares outstanding. >> what's interesting about that is it nevertheless can support the market going higher as you've indicated. people can point to it as being slow revenue growth and it's not as if that's going to hold back performance. >> no, it's not. and that's the funny thing. we talked about this being the day after april fools' day and the last four years has been like april fools' for most investors. most investors are

fundamentalists. the fundamentals clearly don't support the level of stock prices. but if you look at the amount of financial engineering going on in the credit market, that will support even substantially higher stock prices going down the road and its artificial boosts to earnings per share that goes on during a credit boom is a big reason why. >> and perhaps another sign, too, of the market comeback. investment clubs are reportedly making a comeback, as well. the group of small investors which pool their money to try their hand tt stock market have been growing. this after the financial crisis after they initially saw the partnership drop off. jane wells filed a report on that for us earlier. in light of that, we asked if you think the emergence of investor clubs is bullish or bearish sign. ed wrote i've been running a growing club. we now have more than 600,000 pounds under management and achieved overall gainses of 26%

for the current tax year. we're aiming for even more to be added through 2014. love that e-mail. brian, any response here? there have been suggestions actually that the individual investor still isn't getting into the market. perhaps that's starting to dhang. >> for the last four years, it's only been buybacks that have been driving stock prices higher. all other investors combined have been net sellers. thou we're starting to see a little bit of net buying. not very much, but in this business, it's change at the larger that matters. and if we go for an environment where we've seen heavy selling, that turns into a neutral or a slight positive at a time when buybacks are accelerating. he could see further strong stock price gains over the coming, say, 12 to 18 months. >> right. >> even though we've already had a pretty good year. >> even though it's already been a 10% year. will we get the pattern of usual weakness? who knows. there are reasons to potentially like takz here. thank you for all your time this

morning. thanks to all of you for tuning into the program here. u.s. "squawk box" is up next. join us back here tomorrow morning.

good morning. hmos getting a boost on news medicare is raising its advantage rate. in europe, stocks are under pressure after manufacturing data shows a continued contraction in the eurozone. and in asia, a mixed picture overnight. we're going to accepted our intrepid reporter to asia eventually. andrew ross sorkin. and the australian central bank leaving rates on hold in the first of many interest rate decisions scheduled around the world this week. it's tuesday, april 2nd, 2013, and "squawk bo